Construction Outlook
Fed rate pause could have positive effect on housing market in 2024, economists predict overall growth
Late last year, the Federal Reserve indicated it was likely done raising rates in its efforts to bring inflation under control and avoid a recession. Construction forecasters were expecting the news even before it was announced, which led to a primarily optimistic outlook for construction starts in 2024.
According to Dodge Construction Network, overall construction starts are expected to rise 7% this year, following a 1% increase in 2023. That projection would bring total starts to $1.206 trillion in 2024. Dodge sees all regions of the country making gains, led by the Northeast at 16% and the West at 10%.
“As we go into 2024, we’re starting to see economic growth become more consistent and accelerating by the end of the year,” said Dodge Chief Economist Richard Branch in the article “2024 Forecast: Non-Building, Manufacturing Lead the Way” by Engineering News-Record.
Branch added that the outlook is dependent on the assumption that the Federal Reserve is done raising interest rates. Dodge expects rates to begin falling in the middle of 2024, according to the Engineering News-Record article.
A rate increase freeze and expected drop later would bode well for the housing market, according to Dodge and other forecasters. Dodge predicts an overall 11% increase, with a rise of 9% in single-family and 14% in multifamily. ConstructConnect predicts a 4.4% increase in overall residential. The National Association of Home Builders forecasts single-family rising 3.7%.
“As interest rates stabilize and then begin to decline after Q1 or Q2, the homebuilding sector will revive,” said Alex Carrick, Chief Economist at ConstructConnect.
Transportation’s continued surge
While overall construction was relatively flat in 2023, the transportation sector, which includes public highway, pavement and street construction, was a standout with double-digit growth that saw it reach $108.6 billion. The American Road & Transportation Builders Association (ARTBA) expects the trend to continue and increase another 16% in 2024 to nearly $126 billion, according to Alison Black, Chief Economist at ARTBA.
Black indicated that the rise was influenced by the Infrastructure Investment and Jobs Act (IIJA) because many of the projects supported by IIJA are in the construction phase. Plus, many states are increasing their own revenues to match federal funds and make additional transportation investments, using a combination of general fund transfers, bond issues, business taxes, and other user-fee increases.
Considering IIJA’s impact on starts, along with states’ increased revenue, ARTBA predicts the total value of overall transportation to grow to $214 billion, a 14% increase. That includes sectors such as airport construction, bridges, public transit, rail, and ports.
Both Dodge and Fails Management Institute (FMI) have positive outlooks for the non-building sector, which includes transportation. Dodge sees overall growth at 7% with highways and bridges up 23% and environmental public works rising 10%. It only predicts power plants/gas/communications to fall, dropping 17%.
FMI’s outlook is more modest at 7.7% overall with highways and streets at 8.6%, sewer systems at 9.1%, and water supply at 7%. In contrast to Dodge, FMI predicts power will have an increase of 6.2%.
Sector gains
Manufacturing is expected to see double-digit growth within the overall non-residential market, according to both Dodge and FMI, with Dodge predicting 16% and FMI 15.1%. Both have an overall outlook for non-residential at about 4%.
Dodge predicts as much as 17% growth in the hotels and motels sector, and 9% in stores and shopping centers. It also sees a rise in educational buildings and health care facilities, with drops in office buildings and warehouses. Other non-residential is predicted to be flat.
While FMI predicts office and commercial will fall, it anticipates growth in amusements and recreation, religious, education, health care, and public safety.
